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Prime Minister Narendra Modi was heading for a heavy defeat on Sunday in a key election in India's third most populous state, signaling the waning power of a leader who until recently had an unrivalled reputation as a vote winner.

Modi's second straight regional election setback will galvanize opposition parties, embolden rivals in his own party and diminish his standing with foreign leaders amid concern he may not win a second term as prime minister.

"This is a clear indication that Modi's popularity may now have peaked," said Satish Misra, a political analyst at the Observer Research Foundation.

The heavy loss in Bihar will also hamper Modi's push to pass economic reforms because he needs to win most state elections in the next three years to gain full control of parliament.

In the most significant vote since he won power 18 months ago, Modi's Bharatiya Janata Party (BJP) crashed to defeat after running a controversial campaign that sought to polarise voters along caste and religious lines.

It was the most expensive state election ever fought by the BJP, with more than 90 top party figures addressing 600 rallies over the last six weeks, party officials said.

"The Bihar election was a very important battle for us. We will have to analyze each and every aspect of the result," said Ram Madhav, a BJP general secretary.

"There are lessons to be learned."

An anti-Modi alliance led by Chief Minister Nitish Kumar was ahead in 164 seats in the 243-seat regional assembly, an overwhelming majority, tallies compiled by the election commission showed.

Modi tweeted that he had called to congratulate Kumar, whose regional "grand alliance" could now become a template for politicians seeking to prevent Modi's march towards untrammeled power under India's federal system.

The defeat could dampen the mood as Modi heads to Britain for the first bilateral visit by an Indian leader since 2006. Modi is due to address a sellout crowd next week at London's Wembley stadium.

Govern, don't campaign

Modi's BJP-led alliance was ahead in 61 seats of 239 where trends were clear. Some regional party leaders expressed bitterness over a campaign that thrust Modi into the spotlight - he addr

"The role of the prime minister is to govern the country, and not become the lead campaigner in a state election," one senior BJP state leader said, asking not to be named.

Bihar is one of its biggest electoral prizes and the most pressing challenges of India prevail there, including widespread poverty, corruption and poor infrastructure. If independent, its 104 million people would be the world's 13th-largest nation, more populous than Germany.

The result is a setback for Modi because it damages his prestige, makes parliament more of an obstacle, and complicates politics within his ruling alliance, according to said Milan Vaishnav of Carnegie Endowment for International Peace.

The BJP is in a minority in the upper house of parliament, where seats are allocated according to a party's strength in the states, enabling the opposition to block reforms, including the biggest overhaul of taxes since independence in 1947.

"It raises the likelihood that the opposition will use this mandate to block important bills," Vaishnav said. "This loss will give a fillip to dissenters within the party who are upset with Modi's governance."

This may have been Modi's last chance to win a state election before the spring of 2017. He faces five elections next year in regions where his party has failed to make inroads.